FINANCIAL FOCUS: Nourish your investment strategy's 'roots'

Published: Monday, April 28, 2014 at 05:16 PM.

Since no one can predict "up” or “down” markets, you’re better off by staying invested.

Also, just as horticulturalists take steps to keep their trees from being subject to disease, you can keep your portfolio in good shape by periodically “pruning” it of investments that no longer meet your needs.

Here’s something else that tree planters can teach us: diversification.

An orchard that contains different fruit trees may have commercial benefits greater than an orchard that only grows apples.

Plus, presence of a variety of trees can prove beneficial if disease strikes one type. In some areas of the country, for example, Dutch Elm disease wiped out thousands of trees, leaving entire streets treeless. If some other species had also been planted, these streets would still have had the benefits provided by mature trees, even if the elms were gone.

As an investor, you don’t want to own just one type of financial asset, such as growth stocks, because if a downturn hits this segment, your entire portfolio could take a big hit.

A better strategy would be to populate your “financial orchard” with a variety of investments — such as stocks, bonds and government securities — suitable for your situation. (Keep in mind: While diversification can help reduce volatility's effects, it can’t guarantee a profit or protect against loss.)



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